Impact of 2G Verdict: Networth Stock Broking

Networth Stock Broking has come out with its report on 2G Verdict. The research firm is positive on Bharti Airtel.  

The Supreme Court (SC) has cancelled 122 licenses for mobile networks issued during 2008. SC also imposed a fine of Rs 4 crore on Videocon, Swan and Alliance Infratech, Rs5 crore on Etisalat, Tata Telecom Tata and Uninor while, Loop, Essar, S-Tel and Systema have been fined Rs 50 lakh each as these companies offloaded their shares after getting the licenses. SC guided Telecom Regulatory authority of India (TRAI) to make fresh recommendations on the grant of licenses. The government will take decision on licenses one month post TRAI recommendation. However, the telecom firms can operate the licences for four months by paying licence fees at market rate. Out of the 122 licenses, 21 belong to Videocon (Datacom) , Uninor (Unitech wireless) holds 22, Idea 9, Tata Teleservices 3, Etisalat (Swan Telecom) 13, Loop 21, MTS (Sistema Shyam) 21 and S-tel 6. Since, at the time of 2G spectrum allocation under the regime of then Telecom minister Mr A.Raja, most of the companies had not even stipulated paid up capital as required in the eligibility criteria.

However, we expect that auction of 2G spectrum (~500MHz) would provide one more chance for the companies like Uninor, Sistema-Shyam, Tata Tele etc. which is still waiting to get spectrum in Delhi Circle. Further, we expect that players (Videocon, Loop etc.) who were earlier ready to give their spectrum back to government may make exit through this way, which will pave the much needed consolidation process expected in the telecom sector in near future. Also one need to see at what price 2G will be auctioned, while we believe government may get higher amount than the initial amount it received, after auctioning 2G spectrum (following de-linking spectrum & license) as it had received during 3G auction (~1 Lakh crore).

The overall gain related to this issue would be moderate as subscriber base emanated from the licenses granted post 2008 contributes only 5% of the present active subscriber base in India. However, bigger incumbent players like Bharti Airtel, Vodafone etc. will be taking lead role in consolidation process in the sector and would benefit in the form of reduced competition that has been threatening their margins as they would have extended leeway in revising tariff rationally. We are positive on Bharti Airtel. 

Public holding more than 90% in Indian cos

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